Why the Aereo Case Has Cloud Computing Companies Worried

April 22, 2014

by Amy Schatz, Re/code

In the copyright fight between broadcasters and Internet TV startup Aereo, cloud computing companies like Dropbox and Google are stuck uncomfortably in the middle.

Tech companies will be watching closely on Tuesday as the Supreme Court hears arguments in the Aereo case because they’re worried that a loss for the startup could cause them legal problems in the future.

Broadcasters don’t have problems with cloud computing companies like Dropbox, Amazon or Google, but those companies could still find themselves affected by the TV industry dispute because Aereo offers a cloud-based service. Tech companies, consumer advocates and even broadcasters themselves have flooded the court with briefs on why the justices shouldn’t rule broadly on the legality of cloud-based storage services.

“Under the hood, what Aereo is doing is storing TV programs at the request of a user and transmitting to the user’s device,” said Mitch Stoltz, a staff attorney at the Electronic Frontier Foundation. ”You put those together and that’s a lot like what a lot of cloud services do, too.”

Aereo provides access to local TV stations over the Internet for a small monthly fee. Consumers rent access to tiny remote antennas and record network TV shows to watch live or later on tablets, smartphones or PCs.

Broadcasters have sued the company, saying Aereo is stealing their content and the company should pay licensing fees like cable companies. Aereo contends that it is simply renting consumers access to remote antennas and a DVR service that allows them to watch free over-the-air TV channels.

Aereo argues that it is giving consumers a chance to watch private broadcasts of TV shows, while station owners say the company is really transmitting public broadcasts. It’s an important distinction because private broadcasts are permitted under copyright law but public broadcasts aren’t.

“The case here ultimately asks what does it mean to publicly perform a work? That matters because if what the cloud computing companies are doing by making your content available back to you is publicly performing, that means they need to get a license to do that,” said Matthew Schruers, vice president of law & policy at the Computer and Communications Industry Association, which has filed in favor of tech companies in this case.

Broadcasters dispute the notion that a victory for their side against “Aereo’s Rube Goldberg-like contrivance” would be a problem for the cloud computing industry. “There is an obvious difference between a service that provides the means to store, copy, or access content supplied by the user and a service that provides the content itself,” the broadcasters* wrote in a brief last week.

“Contrary to Aereo’s contentions, no one has suggested that these ‘virtual locker’ services necessarily are liable for infringement whenever they are used to store content that was not ‘lawfully’ acquired,” the broadcasters continued.

But in a joint filing, the Center for Democracy and Technology, the wireless industry and the Information Technology Industry Council (which represents Google, Apple, IBM and Facebook, among others), argued cloud computing services depend on the legal understanding that remote storage and transmittal of data is not a public performance.

“If that understanding were thrown into doubt, cloud computing services would face a serious predicament: Their core functions would become susceptible to copyright claims from a virtually limitless class of possible claimants, with the potential for ruinous statutory damages,” the trade associations wrote in a brief. Tech companies also don’t want to be put in the position of having to determine whether customers’ content is infringing copyright protections.

BSA, the Software Alliance that represents Microsoft, Adobe, Intuit and 22 other tech companies, offered similar comments, suggesting that the justices defer to Congress to solve any “concern that existing standards somehow skew the balance between copyright owners, innovators and the public.”

There have been loud enough concerns raised by the tech community that the Justice Department asked the justices to wade carefully through the cloud computing issue.

Obama administration lawyers said the court should not “call into question the legitimacy of innovative technologies that allow companies to use the Internet to store, hear and view their own lawfully acquired copies of copyrighted works,” in a filing that supported the broadcasters’ arguments. Finding on behalf of broadcasters “need not threaten the legality of cloud computing,” the Justice Department said.

Aereo is expected to make the argument Tuesday that its service is simply making it easier for consumers to see local, free over-the-air TV broadcasts. The company argues that it’s not hurting broadcasters’ main revenue stream — advertising — because they’re simply allowing consumers to watch local stations.

It’s an argument echoed by consumer groups, which told the court in early April that “Aereo should not be liable for offering a cloud-based equipment rental service that merely enables consumer control over how and when to engage in lawful private performances of free [over-the-air] broadcast television.”

Station owners have to provide consumers free access to local stations via antennas because they are using public airwaves for free. Broadcasters can, however, charge pay-TV companies a “retransmission” fee for access to their channels.

Those fees have become an important part of the broadcast business in recent years as station owners have successfully prodded cable and satellite-TV companies to cough up more money. Such fees, which accounted for about one percent of broadcaster revenue in 2006, will rise to almost 13 percent of revenue by 2016, according to research firm SNL Kagan.

It’s that revenue stream that broadcasters are trying to protect with this case.

* NBCUniversal is a party in this case. It is an investor in Revere Digital, Re/code’s parent company.